Fixed Income
Modeling Corporate Bond Returns
December 2, 2020
We propose a new conditional factor model for corporate bond returns with four factors and time-varying factor loadings instrumented by observable bond characteristics. We find our factor model excels in describing the risks and returns of corporate bonds, improving over previously proposed models in the literature by a large margin.
ESG Investing
Climate Finance
October 29, 2020
The paper reviews the literature studying interactions between climate change and financial markets, including various approaches to incorporating climate risk in macro-finance models as well as the empirical literature that explores the pricing of climate risks across several asset classes.
Market Risk and Efficiency
Should Information be Sold Separately? Evidence from MiFID II
September 23, 2020
This paper investigates whether MiFID II, a European regulation that unbundles research from transactions, improves the efficiency of information production.
Macroeconomics
Runs to Banks: The Role of Cash Sweeps During Market Downturns
September 9, 2020
Sweep deposits from brokerage firms to banks vary inversely with the stock market. Overall, sweep deposits are a primary driver backing the inverse relation between total bank deposits and the stock market, and are not destabilizing, but instead stabilizing for banks as households reduce risk by converting stock to cash during periods of high stress.
Tax Aware
Integration of Income and Estate Tax Planning
September 1, 2020
Preservation and transfer of wealth to future generations is one of the central financial goals for most high-net-worth families. We show that a family that invests with income and estate tax efficiency in mind can achieve substantially higher wealth levels than a family oblivious to taxes.
Asset Allocation
Principal Portfolios
July 7, 2020
We propose a new asset-pricing framework in which all securities’ signals are used to predict each individual return. While the literature focuses on each security’s own- signal predictability, assuming an equal strength across securities, our framework is flexible and includes cross-predictability.
Factor/Style Investing
Understanding Momentum and Reversals
June 9, 2020
Stock momentum, long-term reversal, and other past return characteristics that predict future returns also predict future realized betas, suggesting these characteristics capture time-varying risk compensation.
Asset Allocation
Biases in Long-Horizon Predictive Regressions
June 4, 2020
This paper derives the small sample bias of estimators in J horizon predictive regressions, providing a plug-in adjustment for these estimators. A number of surprising results emerge, including a higher bias for overlapping than nonoverlapping regressions despite the greater number of observations and particularly higher bias for an alternative long-horizon predictive regression commonly advocated for in the literature.
Tax Aware
Tax-Efficient Portfolio Transition: A Tax-Aware Relaxed-Constraint Approach to Switching Equity Managers
March 2, 2020
For a taxable investor with a highly appreciated equity portfolio, replacing the portfolio manager is likely to trigger substantial tax liabilities. We find that a tax-aware relaxed-constraint post-transition strategy significantly outperforms a traditional tax-agnostic long-only strategy in its ability to preserve and grow the investors after-tax wealth over the long term.
Leverage
Beyond Basis Basics: Leverage Demand and Deviations from the Law of One Price
February 7, 2020
Bases are driven by intermediaries’ cost of capital and the amount of leverage demand for an asset. Focusing on leverage demand, we find bases negatively predict futures and spot market returns with the same sign in both global equities and currencies.